Analysis: unit pricing
A lesson from Barcelona
In the lead up to the 1992 Barcelona Olympics Sergei Bubka had been the pole vault world champion for a decade. He was a raging favourite for gold. The pole vault works by elimination. The height is steadily raised until only one competitor, the winner, is left. Competitors can enter at any height but three misses and you are out. Bubka sat out the early jumps waiting for the bar to reach a height worthy of his talents. Finally he was ready. He jumped . . . and missed - strike one. He tried again - strike two. Last jump, another miss, strike three, and the great Bubka was eliminated without clearing a height.
In this issue of Analysis, Deloitte draws lessons from Barcelona as the trend towards frequent (daily) and ever more sophisticated unit pricing systems within Australian superannuation gathers pace. A lot can go wrong, and already has in some high profile cases. There are many potential sources of error. Success depends on both internal and external parties. Trustees must understand the risk and cost of failure, manage it closely, and prepare well before going this path. Error prevention is expensive, but far cheaper than compensation. Above all, we suggest you do not set the bar too high. Be realistic in your aims. Perhaps the old fashioned crediting rate mechanisms have something going for them – but only when done properly and thoroughly.
To read this month's edition of Analysis please download the PDF below.
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